Online Network Inc. has a net income of $700,000 in the current fiscal year. There are 100,000 shares of common stock outstanding along with convertible bonds, which have a total face value of $1.6 million. The $1.6 million is represented by 1,600 different $1,000 bonds. Each $1,000 bond pays 5 percent interest. The conversion ratio is 10. The firm is in a 20 percent tax bracket.
a. Compute basic earnings per share
b. Compute diluted earnings per share